In re McPhilamy

• Citation: 566 B.R. 382
• Decision Date: 31 January 2017
• Docket Number: CASE NO: 16–10238
• Parties: IN RE: Sean Michael MCPHILAMY, et al., Debtors
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

566 B.R. 382

IN RE: Sean Michael MCPHILAMY, et al., Debtors

CASE NO: 16–10238

United States Bankruptcy Court, S.D. Texas, Brownsville Division.

Signed January 31, 2017

Marcos Demetrio Oliva, Leigh Ann Tognetti, Marcos D. Oliva PC, McAllen, TX, for Debtors.

MEMORANDUM OPINION

GRANTING CONFIRMATION OF DEBTORS' CHAPTER 13 PLAN

&

DENYING CHAPTER 13 TRUSTEE'S MOTION TO DISMISS

[Resolving ECF No. 23, 21]

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

Congress's enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA ")—specifically the hanging paragraph of 11 U.S.C. § 1325(a) (the "hanging paragraph ")—creates two exceptions that limit a debtor's right to cramdown certain claims in a chapter 13 plan. Often, it falls to the courts to determine if a particular claim falls within either of the hanging paragraph's two exceptions. This is one such case. It comes down to this: should the Court confirm a chapter 13 plan in which Sean & Bertha McPhilamy ("Debtors ") propose to treat certain secured cross-collateralized claims of Rio Grande Valley Federal Credit Union ("RGVFCU ") in motor vehicles purchased for the personal use of the Debtors within 910 days, and in some cases, within one year of filing bankruptcy where the amount of the secured claim exceeds the value of the vehicles as wholly unsecured claims? Debtors have two personal vehicles that are cross-collateralized in five different loans. RGVFCU has not opposed confirmation, however, the chapter 13 trustee ("Trustee ") expressed concern as to whether the loans in question may be treated as wholly unsecured pursuant to the hanging paragraph. Seeking clarification of the application of § 1325(a), the parties look to this Court to determine whether the Debtors' chapter 13 plan is confirmable. Specifically, the Court is presented with two issues: to wit, (1) whether the cross-collateralized loans are purchase-money security interests, and (2) whether personal motor vehicles can be considered "other thing[s] of value" under the hanging paragraph's second exception. Accordingly, this Court now considers the parameters of the Bankruptcy Code,¹ specifically the hanging paragraph, relevant case law, and the arguments lodged by the Debtors to determine whether Debtors' chapter 13 plan is confirmable.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. P. 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. If there is an inconsistency, this Memorandum Opinion controls.

Debtors filed for relief under chapter 13 of title 11 of the Code on July 29, 2016. [ECF No. 1]. Debtors filed a chapter 13 plan in conjunction with their petition. [ECF No. 2] (as amended by [ECF No. 23] ) (the "Plan "). The Trustee filed a Motion to Dismiss or Convert on September 28, 2016, due to alleged deficiencies in the proposed Plan and Debtors' alleged delays in filing amendments to the proposed Plan and Schedule I. [ECF No. 21]. RGVFCU filed the following seven Proofs of Claim:

i. Claim No. 7 in the amount of $1,704.50 secured by a 2015 Honda Civic (the "Civic "). The loan was executed on August 14, 2015, which was both within 910 days and one year of filing bankruptcy and was valued by RGVFCU in the amount of $15,950.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money loaned/Cross Collateralized with 2015 Honda Civic;"

ii. Claim No. 8 in the amount of $14,618.80 secured by a 2015 Chevrolet Camaro (the "Camaro "). The loan was executed on April 7, 2016, which was both within 910 days and within one year of filing bankruptcy and was valued by RGVFCU in the amount of $18,600.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money loaned/Cross Collateralized with 2015 Chevrolet Camaro;"

iii. Claim No. 9 in the amount of $5,327.90 secured by the Camaro. The loan was executed on April 18, 2016, which was both within 910 days and within one year of filing bankruptcy and was valued by RGVFCU in the amount of $18,600.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money loaned/Cross Collateralized with 2015 Chevrolet Camaro;"

iv. Claim No. 10 in the amount of $18,001.05 secured by the Civic. The loan was executed on August 14, 2015, which was both within 910 days and one year of filing bankruptcy and was valued by RGVFCU in the amount of $15,950.00. In part 2, Section No. 8 of the proof of claim, it states that the basis of the claim was a "Vehicle loan." Debtors admit that the loan was used to purchase the Civic. The attached Loan and Security Agreements list the Civic as the collateral. The Texas Certificate of Title and NADA Vehicle Information for the Civic are attached;

v. Claim No. 11 in the amount of $3,024.64 secured by the Camaro. The loan was executed on May 17, 2016, which was within 910 days, but not within one year of filing bankruptcy and was valued by RGVFCU in the amount of $18,600.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money loaned/Cross Collateralized with 2015 Chevrolet Camaro;"

vi. Claim No. 12 in the amount of $24,109.02 secured by the Camaro. The loan was executed on July 30, 2015, which was both within 910 days and one year of filing bankruptcy and was valued by RGVFCU in the amount of $18,600.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money Loaned/Cross Collateralized with 2015 Chevrolet Camaro." The attached Loan and Security Agreement lists the Camaro as the collateral for the loan. The Texas Certificate of Title and NADA Vehicle Information for the Camaro are attached;

vii. Claim No. 13 in the amount of $3,826.96 secured by the Camaro. The loan was executed on July 20, 2015, which was within 910 days but not within one year of filing bankruptcy. RGVFCU valued the Camaro at $18,600.00. In Part 2, Section No. 8 of the proof of claim, it states that the basis for the claim was "Money Loaned/Cross Collateralized with 2015 Chevrolet Camaro."

See [Claim Nos. 7–1, 8–1, 9–1, 10–1, 11–1, 12–1, 13–1].

Each of RGVFCU's loans contains a clause which discusses cross-collateral, which provides the following:

What The Security Interest Covers/Cross Collateral Provisions—The security interest secures the Loan and any extensions, renewals or refinancings of the Loan. If the Property is not a dwelling, the security interest also secures any other loans, including any credit card loan, you have now or receive in the future from us and any other amounts you owe us for any reason now or in the future, except any loan secured by your principal residence. If the Property is household goods as defined by the Federal Trade Commission Credit Practices Rule or your principal residence, the Property will secure only this Loan and not other loans or amounts you owe us.

[Claim No. 7–1 at 6]; [Claim No. 8–1 at 6]; [Claim No. 9–1 at 6]; [Claim No. 10–1 at 6]; [Claim No. 11–1 at 6]; [Claim No. 12–1 at 6]; [Claim No. 13–1 at 6]. The Truth in

Lending Disclosure included with each loan further states:

Security: Collateral securing other loans with the credit union may also secure this loan. You are giving a security interest in your shares and dividends and, if any, your deposits and interest in the credit union; and the property described below[.]

[Claim No. 7–1 at 4]; [Claim No. 8–1 at 4]; [Claim No. 9–1 at 4]; [Claim No. 10–1 at 4]; [Claim No. 11–1 at 4]; [Claim No. 12–1 at 4]; [Claim No. 13–1 at 4].

On October 3, 2016, Debtors filed both an amended chapter 13 plan ("Amended Plan ") and Amended Schedules A, B, C, C–1, I and J. [ECF Nos. 23, 22]. Debtors list the current value of the Civic—Mrs. Bertha McPhilamy's personal vehicle—as $15,950.00 on Schedule B. [ECF No. 22 at 1]. RGVFCU lists the value of the Civic as $15,950.00 and the amount of the claim as $18,001.05. [Claim No. 10–1 at 2]. Debtors list the current value of the Camaro—Mr. Sean McPhilamy's personal vehicle—as $18,600.00 on Schedule B. [ECF No. 22 at 1]. RGVFCU lists the current value of the Camaro as $18,600.00 and the amount of the claim as $24,109.02. [Claim No. 12–1 at 2].

The treatments of the RGVFCU claims are set forth in Sections No. 5 and 8 of the Amended Plan. [ECF No. 23]. Section No. 5 of the Amended Plan treats Claims No. 10 and 12 as "910 Claims"—or debts that were incurred within 910 days preceding the petition date and secured by a lien on a motor vehicle—for which full payment with interest at the rate of 5.5% will be provided. Id. at 5. Claim No. 10 documents RGVFCU's $18,001.05 loan to Debtors, which was used to finance the Civic. [Claim No. 10]; see also [ECF No. 31 at 3]. Similarly, Claim No. 12 lists the balance owed on the Camaro at $24,109.02 and represents the loan Debtors' used to refinance the Camaro. [Claim No. 12]; see also [ECF No. 31 at 3–4]. Conversely, section No. 8 sets forth RGVFCU's remaining five "cross collateralized" claims and lists the total value of the collateral at $0.00 for each claim. [ECF No. 23 at 6]; see also [Claim No. 7–1 at 4–6, 8–1 at 4–6, 9–1 at 4–6, 11–1 at 4–6, and 13–1 at 4–6] (the "Cross–Collateralized Loans "). Based on section No. 8 of the Amended Plan, RGVFCU's claims as to the Cross–Collateralized Loans—although secured—would be treated as wholly unsecured and would receive a 4% dividend along with the general unsecured class of creditors. [ECF No. 23 at 6]; [ECF No. 31 at 4]. RGVFCU has not objected to the Amended Plan.

On October 5, 2016, this Court held a confirmation hearing on Debtors' Amended Plan. At the hearing, the Trustee requested guidance as to whether the Plan is confirmable based on the Cross–Collateralized Loans' treatment as unsecured...